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Funding rate arbitrage is a legitimate trading strategy and does not violate exchange policies.
Funding Rate is a key market mechanism, similar to traditional loan interest where borrowers pay lenders. It’s part of user protection and anti-money laundering regulations, requiring exchanges to disclose it transparently
Cross-exchange funding rate arbitrage is encouraged as spatial arbitrage between crypto platforms, helping exchanges align their price curves, boost liquidity, increase trading volume, and enhance reliability.
For that reason, some exchanges have also developed their own funding rate trading bots. However, since these bots operate within the same exchange, they can only choose between two strategies:
-> Spot vs. Futures when the funding rate is positive
-> Margin Spot vs. Futures when the funding rate is negative
This is due to the limitations of operating within a single platform’s ecosystem.
Screenshots of exchange interfaces.
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